Valeant Finally Bags Salix for $11 Billion
After much of a clout about who will acquire Salix Pharmaceuticals (SLXP), Canadian Drug maker Valeant Pharmaceuticals International Ltd (VRX) completed the purchase for $11 billion last Wednesday.
Salix Pharmaceuticals works in gastro instrumental drugs and it will provide Valeant with new therapeutic business. This is Valeant’s biggest buy so far. Valeant increased the takeover price for Salix by about a billion dollar in the new deal to knock out rival bidder Endo International earlier in March. Valeant rose the per share price by $15 from $158, the price offered by the drug company in February. This higher and all cash offer made Endo Pharmaceutical Plc. (ENDP) withdraw its cash and stock bid, valued at $176.56 per share.
Valeant’s Chief Executive Officer Michael Pearson said that Valeant was looking to build on its acquisition of Salix by smaller deals. Michael Pearson’s hostile bid for Allergan Inc. (AGN) had failed last year. This will also be good news for Bill Ackman (Trades, Portfolio), who bought more than $3 billion stake in Valeant after having worked with the drug company in the Allergan bid.
The bid war between Endo and Valeant
Endo’s bid for Salix was valued at $11.2 billion or $175 per share. The deal had been seen as uncertain and taking longer to close as it required shareholders’ approval. Valeant needed no such approval. Valeant’s offer provided Salix with about $1 billion more in cash. Valeant announced that it is offering shares worth $1.45 billion. It will be used to buy Salix along with borrowed funds and cash on hands. Endo later announced that it would withdraw its offer to acquire Salix after Valeant increased its offer. Valeant had deal making at the center of its strategy, and Valeant has been involved in more than 100 transactions since CEO Mr. Pearson took the helm. The bidding war for Salix put Valeant’s Pearson against his former mentee, Endo Chief Executive Rajiv De Silva. Rajiv De Silva was also a top executive at Valeant until 2012.
Salix shares added 2% to $172.75 the day the deal was announced, while Valeant’s shares rose 2.5% to $202.34. Endo shares also rose 2.7% to $89.65.
Drug companies have been active deal makers and they always look to decrease their costs and take other advantages because of certain roadblocks in the industry. Last year, about $268 billion worth of mergers and acquisition were announced in the pharmaceutical industry globally. About double the amount in 2013 and the biggest total since 1995. Tax considerations have also been helping the deals. A lot of U.S. drug companies have bought their foreign rivals and moved their tax locales to countries with lower corporate rates. These deals are called as inversions. U.S. restricted these transactions last year and those companies that had already managed to invert like Valeant and Endo started to look for deals in United States.
Earlier Salix cancelled a planned inversion deal of its own after United States Treasury introduced rules aimed at preventing such deals. Allergen held takeover talks with Salix around that same time. The Botox maker had just fended off a deal from Valeant. As, Allergan walked away from the deal and agreed to be bought by another inverted company, Actavis Plc. (ACT), Salix found a new buyer as Valeant.
The deal aftermath
Salix is also laying off 258 people at its headquarter at Raleigh as mentioned in a letter that was sent on the same day that Valeant completed its deal. Valeant is laying a large portion of its workforce in Raleigh. Salix said supply levels for Xifaxan and other drugs also increased more than it had indicated, forcing it to cut its full year earnings forecast.
